Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
The Big Short 2020 – World Pushes Credit/Investments Into Risk Again - 11th Jul 20
The Bearish Combination of Soaring Silver and Lagging GDX Miners - 11th Jul 20
Stock Market: "Relevant Waves Vs. Irrelevant News" - 10th Jul 20
Prepare for the global impact of US COVID-19 resurgence - 10th Jul 20
Golds quick price move increases the odds of a correction - 10th Jul 20
Declaring Your Independence from Currency Debasement - 10th Jul 20
Tech Stocks Trending Towards the Quantum AI EXPLOSION! - 9th Jul 20
Gold and Silver Seasonal Trend Analysis - 9th Jul 20
Facebook and IBM Tech Stocks for Machine Learning Mega-Trend Investing 2020 - 9th Jul 20
LandRover Discovery Sport Service Blues, How Long Before Oil Change is Actually Due? - 9th Jul 20
Following the Gold Stock Leaders as the Fed Prints - 9th Jul 20
Gold RESET Breakout on 10 Reasons - 9th Jul 20
Fintech facilitating huge growth in online gambling - 9th Jul 20
Online Creative Software Development Service Conceptual Approach - 9th Jul 20
Coronavirus Pandemic UK and US Second Waves, and the Influenza Doomsday Scenario - 8th Jul 20
States “On the Cusp of Losing Control” and the Impact on the Economy - 8th Jul 20
Gold During Covid-19 Pandemic and Beyond - 8th Jul 20
UK Holidays 2020 - Driving on Cornwall's Narrow Roads to Bude Caravan Holiday Resort - 8th Jul 20
Five Reasons Covid Will Change SEO - 8th Jul 20
What Makes Internet Packages Different? - 8th Jul 20
Saudi Arabia Eyes Total Dominance In Oil And Gas Markets - 7th Jul 20
These Are the Times That Call for Gold - 7th Jul 20
A Reason to be "Extra-Attentive" to Stock Market Sentiment Measures - 7th Jul 20
The Beatings Will Continue Until the Economy Improves - 6th Jul 20
The Corona Economic Depression Is Here - 6th Jul 20
Stock Market Short-term Peaking - 6th Jul 20
Gold’s Major Reversal to Create the “Handle” - 5th July 20
Gold Market Manipulation And The Federal Reserve - 5th July 20
Overclockers UK Custom Build PC Review - 1. Ordering / Stock Issues - 5th July 20
How to Bond With Your Budgie / Parakeet With Morning Song and Dance - 5th July 20
Silver Price Trend Forecast Summer 2020 - 3rd Jul 20
Silver Market Is at a Critical Juncture - 3rd Jul 20
Gold Stocks Breakout Not Confirmed Yet - 3rd Jul 20
Coronavirus Strikes Back. But Force Is Strong With Gold - 3rd Jul 20
Stock Market Russell 2000 Gaps Present Real Targets - 3rd Jul 20
Johnson & Johnson (JNJ) Big Pharma Stock for Machine Learning Life Extension Investing - 2nd Jul 20
All Eyes on Markets to Get a Refreshed Outlook - 2nd Jul 20
The Darkening Clouds on the Stock Market S&P 500 Horizon - 2nd Jul 20
US Fourth Turning Reaches Boiling Point as America Bends its Knee - 2nd Jul 20
After 2nd Quarter Economic Carnage, the Quest for Philippine Recovery - 2nd Jul 20
Gold Completes Another Washout Rotation – Here We Go - 2nd Jul 20
Roosevelt 2.0 and ‘here, hold my beer' - 2nd Jul 20
U.S. Dollar: When Almost Everyone Is Bearish... - 1st Jul 20
Politicians Prepare New Money Drops as US Dollar Weakens - 1st Jul 20
Gold Stocks Still Undervalued - 1st Jul 20
High Premiums in Physical Gold Market: Scam or Supply Crisis? - 1st Jul 20
US Stock Markets Enter Parabolic Price Move - 1st Jul 20
In The Year 2025 If Fiat Currency Can Survive - 30th Jun 20
Gold Likes the IMF Predicting a Deeper Recession - 30th Jun 20
Silver Is Still Cheap For Now - 30th Jun 20
More Stock Market Selling Ahead - 30th Jun 20
Trending Ecommerce Sites in 2020 - 30th Jun 20
Stock Market S&P 500 Approaching the Precipice - 29th Jun 20
APPLE Tech Stock for Investing to Profit from the Machine Learning Mega trend - 29th Jun 20
Student / Gamer Custom System Build June 2020 Proving Impossible - Overclockers UK - 29th Jun 20
US Dollar with Ney and Gann Angles - 29th Jun 20
Europe's Banking Sector: When (and Why) the Rout Really Began - 29th Jun 20
Will People Accept Rampant Inflation? Hell, No! - 29th Jun 20
Gold & Silver Begin The Move To New All-Time Highs - 29th Jun 20
US Stock Market Enters Parabolic Price Move – Be Prepared - 29th Jun 20
Meet BlackRock, the New Great Vampire Squid - 28th Jun 20
Stock Market S&P 500 Approaching a Defining Moment - 28th Jun 20

Market Oracle FREE Newsletter

AI Stocks 2020-2035 15 Year Trend Forecast

Can Oil-Stocks-to-Oil Ratio Tell Us Crude Oil Price Future Moves?

Commodities / Crude Oil Nov 21, 2013 - 02:02 PM GMT

By: Nadia_Simmons

Commodities

In our essay on oil stocks from Nov. 14, we focused on the connection between the XOI and the general stock market to find out what impact the S&P500 index could have on the oil stock index's future moves. Back then, we also wrote about the relationship between the oil stocks and crude oil:

(...) crude oil has remained in the narrow range, but yesterday it climbed above $95. What's interesting, at the same time the XOI increased slightly above an important resistance. Although they moved in the same direction after weeks of negative correlation, this positive correlation might be just another temporary phenomenon - especially when we factor in the weekly outlook.


Taking the above into account, we've decided to comment on the relationship between them. Let's take a look at the chart below (charts courtesy by http://stockcharts.com).

Light Crude Oil Weekly Chart

When we take a look at the above chart and compare the price action in both cases, we clearly see that oil stocks were stronger in the previous week. They bounced off the bottom of the recent corrective move, pulled back and approached the 2013 high on Friday. What happened with the price of crude oil at the same time? Light crude declined once again and reached a new monthly low of $92.51. On top of that, on Monday the oil stock index climbed up once again and hit a fresh annual high. Meanwhile, crude oil lost almost 1% and declined to slightly above the November low. This price action clearly showed its weakness in relation to oil stocks.

Once we know the current relationship between crude oil and oil stocks, let's take a closer look at the oil-stocks-to-oil ratio. Today, we begin with the long-term chart.

XOI/WTIC Monthly Chart

The first thing that catches the eye on the above chart is a strong negative correlation between the ratio and the price of light crude. When we go back to 2008, we clearly see that the annual high in crude oil was in perfect tune with the ratio's 2008 low. We could see this strong reltionship also in 2009, when the annual low in crude oil corresponded to the ratio's 2009 high (marked with a red ellipse). In the following months, the ratio declined heavily, which led to higher oil prices.

What's interesting, the ratio's 2010 high was in tune with the bottom of the corrective move that we saw in crude oil. We noticed similar price action in September 2011, May, August and October 2012, and February and May 2013.

Looking at the above chart, we see that the ratio remains in the gap between the April 2009 low and May 2009 high (marked with the red rectangle). In all previous cases, such a position of the ratio triggered a correction, which resulted in higher prices of light crude. Additionaly, the ratio has approached the 38.2% Fibonacci retracement level (based on the entire 2009-2011 decline), which is a strong resistance level.

Taking the above into account, if history repeats itsef once again and the ratio declines, we will likely see the bottom of the current correction.

Now, let's zoom our picture and examine the weekly chart.

XOI/WTIC Weekly Chart

Looking at the above chart, we see the same price action - most of the ratio's tops have corresponded to the crude oil's lows. Additionally, the RSI has moved above the 70 level. We saw such situations in 2008, 2011 and again in 2012. Back then, such a high reading on the RSI preceded a move down in the ratio and an upward move in crude oil. If history repeats itself once again, we may see a pullback in crude oil in the near future.

When we factor in the position of the CCI, we clearly see that the indicator is extremely overbought, which is another bearish signal for the ratio.

Now, let's check the short-term outlook.

XOI/WTIC Daily Chart

On the above chart, we see that the ratio has rallied since September, which is in perfect tune with declines in crude oil. In the recent days, the ratio has moved higher once again and hit a new 2013 high. Despite this increase, we haven't noticed a new high in case of the RSI. When we take a closer look at the above chart, we clearly see a negative divergence between the ratio and the position of the indictor.

At this point, it's worth mentioning that there were similar situations in the past - for example in June and October 2012. Back then, such divergences preceded declines in the ratio and had a positive impact on crude oil.

Please note that earlier this year, lower readings on the RSI triggered downswings in the ratio and indicated the bottoms of correction moves. Taking the above facts into account, we can assume that the final bottom of the current correction is just around the corner.

Summing up, the oil-stocks-to-oil ratio is oversold (not only on a short-term basis, but also from the medium-term perspective) as indicated by the RSI. Additionally, it has reached a strong resistance zone created by the gap between the April 2009 low and May 2009 high (marked with the red rectangle on the monthly chart) and reinforced by the September 2009 high, which may trigger a correction in the ratio and an upward move in crude oil in the near future.

Thank you.

Nadia Simmons

Sunshine Profits‘ Contributing Author

Oil Investment Updates
Oil Trading Alerts

* * * * *

 

Disclaimer

All essays, research and information found above represent analyses and opinions of Nadia Simmons and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Nadia Simmons and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Nadia Simmons is not a Registered Securities Advisor. By reading Nadia Simmons’ reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Nadia Simmons, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules